(Adds background in paragraphs two, three and six and executive
comment in paragraphs four, 11 and 12.)
Chesapeake Energy Corp. (CHK) said Monday it would spend $1
billion in hopes of boosting U.S. natural-gas demand, the latest
private-sector initiative aimed at fostering consumption of
domestic fuel supplies that are expected to jump in coming
years.
The oil-and-gas company said it will spend at least $1 billion
over the next 10 years on a new venture-capital fund dedicated to
boosting domestic demand for natural gas, particularly as a
clean-burning transportation fuel. The fund, called Chesapeake NG
Ventures Corp., will invest in companies and technologies that spur
demand for domestically produced oil, natural gas and
natural-gas-to-liquids instead of other oil and diesel fuels.
Chesapeake and other independent producers have unlocked vast
reserves of natural gas in recent years by combining hydraulic
fracturing with horizontal drilling techniques. The resulting glut
of gas has depressed prices.
"It became clear to me having been part of a supply revolution
that we also needed to kick start a demand revolution," Chief
Executive Aubrey McClendon said in a conference call with
reporters.
As such, Chesapeake said it plans to redirect about 1% to 2% of
its forecast annual drilling budget toward projects that could
potentially bring more demand for natural gas as a transportation
fuel.
The transportation sector has yet to adopt the newly abundant
fuel on any wide scale in large part because doing so would require
billions of dollars worth of new infrastructure or a technological
breakthrough to efficiently convert natural gas into a liquid fuel.
Chesapeake's initial investments target both fronts.
Chesapeake plans to invest $100 million in newly issued
convertible debt of Clean Energy Fuels Corp. (CLNE), a company
building natural-gas fueling stations for heavy-duty trucks.
Shares of Clean Energy Fuels were recently up 7.9% to $14.15
after-hours Monday. Its stock had been off 19% over the past three
months.
Chesapeake has already invested in one $50-million tranche of
the company's debt, with two more planned for June 2012 and June
2013. The convertible debt carries a 7.5% coupon and a 22.5%
conversion premium.
Chesapeake also agreed to spend $155 million on a 50% ownership
stake in Sundrop Fuels Inc., a biofuels company building a plant
capable of producing more than 40 million gallons of gasoline a
year from natural gas and waste-plant material.
McClendon said while the investment in Sundrop is speculative,
Chesapeake believes it has found a company that has the technology
it has pursued for three years.
"Nine months ago we found a potential partner that we thought
had achieved that technological breakthrough," McClendon said.
The CNGV investment will be augmented by an added $20 million
pro rata investment by venture capital firm Oak Investment
Partners, an existing holder of the firm.
Shares of Chesapeake were up 0.1% to $29.78 after-hours.
-By Drew FitzGerald and Ryan Dezember, Dow Jones Newswires;
713-547-9208; ryan.dezember@dowjones.com